The FTSE 100 will stay at the same level for the remainder of the year as a combination of Brexit uncertainties, high valuations and a softening in earnings revisions were cited as key reasons to be cautious on the UK stockmarket, according to a Reuters poll.
So far this year the UK’s blue-chip index has risen 4.7%, currently trading around the 7,470 mark, but a rise in sterling to the highest levels since the EU referendum means further gains this year are unlikely.
In particular, the stronger currency has hindered dollar-earning businesses, while the oil sector, which makes up nearly a fifth of the index’s market cap, has also underperformed.
According to Reuters’ poll of 33 market participants, the consensus expectation is for FTSE 100 to move little in the last three months of the year, finishing 2017 at 7,456.
This would mean the UK’s blue-chip stocks rise just 4.4% over 2017, delivering less than half the returns predicted for European Stoxx 600 market, which is expected to rise 9% by year-end.
In contrast, in the same poll taken in June participants predicted a far wider range of closing levels for the index, ranging from 7,000 to 7,900.
Furthermore, while the index is predicted to climb to another record high of 7,630 points by the end of 2018, the forecast was lower than in the June poll, a further sign of a lack of enthusiasm for the UK’s large-cap companies.
The underperformance of the UK versus its European counterparts is predicted to continue, with respondents expecting the FTSE 100 to rise just 7% by the end of 2018, compared to 16% for the Stoxx 600.
Investors have already warned Prime Minister Theresa May the two-year Brexit transition period could face a number of practical obstacles and opposition, while the lack of concrete plans cited in her speech in Florence did little to calm investor jitters about the UK’s plan to leave the EU.
According to Reuters, analysts’ earnings revisions on the index turned negative in the build-up to the Q3 reporting season, one of the main concerns cited by the poll respondents.
Ken Odeluga, market analyst at City Index, told Reuters: “Regardless of theoretical benefits from softer sterling for foreign currency-earning FTSE multinationals, the real-term impact of volatile inflation and a murky horizon on growth will keep pressuring the UK investment case.”